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Business Planning and Budgeting

How many times do you hear, “where is your business plan? Do you wonder what does it matter to them? Or will they understand it? Or why should I write one I know what I am doing……. Oh yeah and the “I can’t afford it!” Well I hate to break it to you, but you can’t afford not to have one.

Business plans are meant to provide a tool that focuses thoughts and ideas and translates these thoughts and ideas into practical “stuff” throughout your business. First and foremost it provides you with a roadmap as to the what, how, when and where necessary to determine your markets, needs, strategy and financial aspects of your business to increase the odds of success. As we have talked about previously, a good business will quickly outgrow a good entrepreneur and get out-of-control. Now this does not have to be an encyclopedia and the detail will depend on the business, the management team, the market and financial position. However, it is critical for each business at conception to articulate the plans and then define the steps, timing and resources required to get there. Optimally, this should be a living process that looks 3-5 years out with a monthly or at the least quarterly budget for the upcoming year and it reviewed, revised if needed and rolled out another year annually. This should be a process that involves the whole team.

In conjunction with this, the key members of the business lift their collective eyes up to corporate goals and objectives. This serves many purposes from a planning point of view but also provides significant team building benefits. In business with long lead times the process is critical and more difficult as those lead times are subject to many factors that change for more reasons than we have time to go into for now. Maybe at a later date we can delve into the fine points of planning.

Everyone has heard all the publicity about having a mission statement and getting the whole corporation or business to buy into the corporate mission etc. These are great when you have staff’s that have missions as their business. For most business, you may hire someone to drive the process and to be a 3rd party asking the questions so you and your management team can focus on the answers. Then from your discussions the plan would be created and you have the main aspect of it ready to move to the next step. However, first let’s just briefly mention some of the areas of importance. First and foremost what is your market? Who are your customers going to be? Describe or define your typical customer. Who fits the profile in the market place? Be specific and develop a list of companies with the contact information. Now if you are having to multi-layer sell due to complexities of products, you may in fact have a strategy for each prospect outlined or at least noted. Who is your competition? How do the channel their products and/or services to the market? What are their strengths and weaknesses? How do you compare? What about pricing? Delivery of service or product, how? Spend time on this as you, your management team and your sales team need to understand the market in detail.

Manufacturing companies will need to spend time working backwards for sales forecast to productions schedules. This will mean considering raw material availabilities in what locations and comparing deliverability with price and stocking needs to maintain a smooth flow through of product. It also means maintenance has to be factored in, as well as security of resources, potential technological advances, allocation of resources for research and development and of course, personnel and cost of production.

Service companies have less to consider but it is also more elastic on the demand side created more uncertainty and adding the need to consider in depth explosive growth and potential valleys. However, you can still work through the process of cost to deliver the service and it needs to include the corporate overhead allocated across all the services.

Now the process moves to personnel and those expenses that are not related to producing a good or to provide a service directly. Items would be related to accounting, overall advertising, employee benefits and other similar costs. These are usually straightforward and relatively easy to forecast.

So now you have defined you best ideas on what you sales/revenues will be this year and with less certainty further out to at least 3-5 years down the road. You have worked through the costs and developed a 5 yr plan and rolled it back into the budget for next year. Most people are glad to get to this point and never looked back. However, I say slow down, get the key players together and each of you talk about the pluses and minuses of the plan as you see it. It is the time for candid conversation but appropriate and focused on having a solid consensus of where the company is headed and why? Now it is also time to roll it out to the company at large and then each management team leader should explain the plan to his personnel. The team should get back together at least quarterly to review progress and see what if any events have influenced the company’s performance.

It takes some time but provides benefits on so many levels and we did not get into how much easier it is get funding from institutions or investors when you have a plan and have compared your performance to it.

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Welcome to my Blog - a platform where I have developed my writing skills in Business Insights from the experience of living it in the real world. Hope to provide some inspiration for my readers and always looking for feedback on my Posts. Look forward to interacting with you ... Good Business Health !!